How Advancing Valuation Period and Earnings Inequality Impacted the Deficit

  • Social Security’s 75-year deficit increased from 0.02% to 3.50% between 1983 and 2024
  • Two-thirds of the increase is due to advancing the valuation period
  • Moving the valuation period forward added 2.38% to the deficit
  • One-third of the increase is due to rising earnings inequality
  • Taxable ratio declined from 90% to 82% as earnings inequality grew

The 2024 Social Security Trustees Report revealed a 75-year deficit of 3.50% compared to a surplus of 0.02% in 1983. The increase over the last 41 years is significant, but two-thirds of it was predictable due to advancing the valuation period. Moving the horizon forward one year adds a negative balance and has increased the deficit by 2.38% of taxable payrolls. Inequality in earnings is the remaining one-third factor. As the taxable ratio dropped from nearly 90% to 82%, less revenue is generated for Social Security, while benefits remain stable for low earners. Additionally, the Average Wage Index (AWI) increases due to higher earnings above the cap, generating no additional tax revenue but inflating future benefits.

Factuality Level: 8
Factuality Justification: The article provides accurate and objective information about the factors contributing to the increase in Social Security’s 75-year deficit over the last 41 years. It explains the predictable part of the increase due to advancing the valuation period and the unanticipated development of rising earnings inequality, which affects taxable ratio and Average Wage Index (AWI). The information is based on data from the 2024 Social Security Trustees Report and presents a clear explanation of how these factors impact the program’s finances.
Noise Level: 8
Noise Justification: The article provides a detailed analysis of the factors contributing to the increase in Social Security’s deficit over time, including both predictable and unanticipated developments. However, it lacks some actionable insights or solutions for readers.
Key People:

Financial Relevance: Yes
Financial Markets Impacted: Social Security Trustees Report and Social Security program
Financial Rating Justification: The article discusses the 2024 Social Security Trustees Report, which shows a 75-year deficit of 3.50% of taxable payrolls compared to a surplus of .02% in 1983. It explains the reasons for the increase in the deficit, including advancing the valuation period and rising earnings inequality, which impacts the Social Security program’s finances. This information is relevant to financial topics as it relates to the financial stability and future projections of a significant government program.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: No
Extreme Rating Justification: There is no extreme event mentioned in the article. It discusses the increase in Social Security’s 75-year deficit and its causes, but it does not describe an extreme event.

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